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Gas Pipeline to Europe Likely

Iran, Azerbaijan, and Turkmenistan may cooperate in construction of a pipeline to transfer gas from the Caspian region to Europe, Tasnim news agency quoted the National Iranian Gas Company (NIGC)'s director for international affairs, Azizollah Ramezani, as saying Saturday.

Due to the recent tensions between Russia and Ukraine, which has distressed Europe over gas supply security, the EU is now considering alternative options for gas imports. Azerbaijan, Turkmenistan, and Iran are among the main alternative options. The EU assessments indicate that Iran could supply 25-30 million cubic meters per day (mcm/d) of gas to Europe.

A total of 10 billion cubic meters (bcm) of gas was exported from Iran to Turkey in 2014, and 6.3 bcm was imported from Turkmenistan, indicating a positive gas trade balance. Currently, gas trade volume stands at 1.5 percent, but the figure is projected to reach 10 percent by 2025. "The Turkish state-owned Botas has always paid its gas dues on time, and is one of our trustworthy customers," Ramezani said.

"In a telephone conversation with the managing director of Turkmenistan's national gas company, he said his country is willing to increase gas exports to Iran," Hamidreza Araghi, managing director of the NIGC, said Saturday. Currently, gas imports from Turkmenistan stand at 38 million cmc per day.

Iran is now ready to export gas to Iraq, and negotiations are being held in order to conclude an agreement with the neighboring country on gas export from Iran via Basra. It is expected that exports will commence in May. "The Iraqi authorities have pledged to ensure the required security by then," Ramezani said, adding: "We are confident that they are capable of doing so."

Around 25 mcm of gas per day is to be exported to Iraq, but in warm seasons the amount might rise to 35 mcm. "Pipe-laying has commenced on the Iraqi side," he noted.

In addition, negotiations are resuming for export of gas to Oman. Currently, technical assessments are being carried out for onshore transfer of gas, and if finalized, there is the potential to export some 28-10 mcm/d.

The price of gas for export is seven times higher than its domestic price. As gas prices are determined regionally, the reduction of energy carrier prices has resulted in drop in domestic prices, as the government pays subsidy for gas, too.

Avoiding Bankruptcy

On account of its huge debt pile, the NIGC was considered bankrupt in the past few years, Araghi said, adding that the NIGC has now been pulled out from what was deemed bankruptcy by the financial measures taken this year.

The NIGC deposits 7,500 billion rials ($281.4 million) each month to the treasury for cash subsidy payments. It earns only 200 rials ($0.007) for sales of every cubic meters of gas. In fact, the company provides funding for implementation of its projects through Note 2(G) of the budget law, which allows it to invest up to $100 billion in oil and gas projects through private contractors in line with Article 44 of the Constitution.

No announcement has been made by the oil ministry on increasing the price of compressed natural gas (CNG), Araghi said, noting that any increase or reduction of energy carrier prices requires ratification by the Organization of Targeted Subsidies.

Iran holds the world’s second largest natural gas reserves after Russia, and the fourth-largest proven crude oil reserves. Iran holds 17% of the world's proven natural gas reserves and more than one-third of OPEC's reserves. Its largest natural gas field, South Pars, is estimated to hold roughly 40% of Iran's gas reserves.

The country is planning to expand its underground natural gas storage capacity to ensure that enough natural gas is available during peak demand periods to avoid electricity supply shortfalls in the future.

Domestic Projects

Laying of Iranshahr-Zahedan gas pipeline will commence Sunday. A number of Iran Gas Trunkline (IGAT) pipelines, namely IGAT6, IGAT8, IGAT9, and IGAT11, have to go on stream between 2015 and 2017 in order to realize the transfer of 300,000 million cubic meters of gas per day from the South Pars gas field. During the first seven months of the current Iranian year (ends March 2015), gas was stored in Sarajeh and Shourijeh storage facilities. However, the rather unexpected warm weather in the past two months dispensed with the need to draw on the inventory.

For the first time in the history of Iran's gas industry, production outstripped consumption this year, Araghi said. While consumption of power plants and industries increased, commercial and household consumption was lower.

Currently, annual gas production capacity stands at 145 billion cubic meters, but is expected to reach 300 billion cmc in the near future.